Adams begin his study by presenting two contrasting views on food subsidies. Critics argue that food subsidies place an unnecessary burden on public budgets and are economically inefficient since they often fail to reach the poor. Proponents, however, contend that food subsidies are crucial for protecting the welfare and nutritional status of the economically disadvantaged, as the poor spend a higher proportion of their income on food compared to the rich. Egypt serves as an ideal case study, given its longstanding food subsidy program dating back to World War II. Despite widespread criticisms of the system’s inefficiencies and leakage to non-needy groups, policymakers are often hesitant to implement reforms due to concerns about political unrest.
The Role of Food Subsidies in Developing Countries
Adams provides an overview of subsidy programs in the developing world, where food subsidies are used to offer certain food items to consumers at below-market prices. The effectiveness of these programs hinges on their ability to deliver subsidised food to the intended target group. Subsidies can be implemented through administrative targeting or self-targeting; Egypt employs the latter method.
Review of the Food Subsidy System in Egypt
– The Egyptian government introduced food rationing in 1941 to provide essential goods.
– The total cost of food subsidies remained relatively small during the 1950s and 1960s.
– In the 1970s, the system expanded to include more food items.
– By 1980, nearly 20 food items were subsidised.
This broader welfare program, not specifically targeted at the poor, includes both explicit subsidies (e.g., food) and implicit subsidies (e.g., water and electricity). Table 2 in the study attempts to estimate the total costs of these subsidies, despite incomplete data. It reveals that implicit subsidies are significant, particularly noting that estimates for water and electricity subsidies cover only urban consumers, excluding rural ones. In Egypt, food subsidies attract more attention than other subsidies, partly because key subsidised items, like wheat and wheat flour, are imported.
Bread and the Egyptian Food Subsidy Program
Wheat and wheat flour are critical to Egypt’s food subsidy program, as they are used to make bread. According to Table 1, bread accounts for about 60% of the total cost of food subsidies. The country produces three types of bread: baladi (82% extraction), shami (67% extraction), and fino (72% extraction). In 1996-97, baladi bread was sold at LE 0.05 per loaf, while its actual cost was LE 0.121. In addition to baladi bread, other subsidised foods include baladi wheat flour, sugar, and oil.
The 1997 Household Budget Survey
To obtain reliable data, Adams initially turned to the 1990-91 Household Income and Expenditure Survey (HIES). However, a key limitation of this survey was its failure to collect expenditure data on different kinds of subsidised foods, making it difficult to assess the distributional effects of subsidies on various income groups. To address this issue, Adams used data from the Egyptian Integrated Household Survey (EIHS), which included detailed information on expenditures for both subsidised and non-subsidised foods across approximately 2,500 urban and rural households from 20 governorates.
Adams calculated per capita total expenditure for each household using a comprehensive measure that encompassed food and non-food expenses, durable goods, and housing values. However, he acknowledged that the gap in calorie availability between high and low expenditure groups might be overstated. To address this potential bias, he calculated a fitted total expenditure per capita by:
1. Regressing non-food expenditure, household size, and regional variables on food expenditure.
2. Calculating fitted food expenditures from the regression coefficients.
3. Adding these fitted food expenditures to observed non-food expenditures.
In his analysis, the lowest expenditure quintile represents the poor, while the highest represents the rich. Since the impact of food subsidies varies between urban and rural areas, the study conducted separate analyses for each.
Conclusion
Adams utilises new household survey data to demonstrate that Egypt’s food subsidy system is self-targeted, favouring the poor because it subsidises foods with characteristics of inferior goods. This trend is particularly evident in urban areas, where the poor receive more income transfers from food subsidies than the rich. However, in rural areas, the system is less effective in targeting the poor. Here, *baladi* bread does not function as an inferior good, and *baladi* wheat flour is the only subsidised food consumed more in absolute terms by the poor. Consequently, income transfers from subsidies in rural areas benefit the poor less than they do in urban areas.
Drawing on experiences from other countries, Adams suggests that administrative targeting could improve the delivery of subsidies to the poor. However, he acknowledges that establishing a new government agency to distinguish between the poor and non-poor and ensure that only the former receive subsidised food would be politically challenging. Excluding the many non-poor households currently benefiting from the system could provoke significant resistance.
Since the food riots of 1977, the Egyptian government’s strategy has been to gradually reduce the costs and coverage of the subsidy system. This approach is likely to continue, as eliminating subsidies on certain foods is expected to have minimal welfare and nutritional impacts on the poor.
Critique
Adams’ work, while valuable, does have limitations. The available data were insufficient, which he himself admits. Additionally, as a foreign researcher, he may have overlooked cultural nuances, particularly in rural Egypt, where subsidised *baladi* bread is often used as animal feed. This practice is vital to the poor and could significantly affect the study’s findings. Moreover, Adams suggests that the program is relatively successful in urban areas but less so in rural regions. However, more accurate and detailed data might reveal different results. While he agrees that administrative targeting could enhance subsidy distribution, his concern about the expense seems misplaced. The cost of subsidies lost to the non-poor could outweigh the investment in establishing a more accurate administrative system. A comprehensive database to identify the poor would benefit other sectors and provide a more efficient foundation for future social policy.
REFERENCES
Adams, Richard H., Jr. ‘Self-Targeted Subsidies: The Political and Distributional Impact of the Egyptian Food Subsidy System’. Washington, D.C.: World Bank, 2000.